NAI apollo: Office lettings market in Frankfurt am Main achieves second-best result after 2000

• Second-highest annual space take-up figure ever recorded at 711,600 sqm
• Banks, financial service providers and insurers account for around one quarter of take-up
• Large contracts above 10,000 sqm register strongest growth
• Vacancies fall below the 1 million sqm threshold
• Average rent rises to €20.70/sqm and prime rent to €40.30/sqm
• Outlook for 2018: Space take-up above the 10-year average in the amount of 474,000 sqm, further decline in vacancies, and rental price growth

Frankfurt am Main, 08.01.2018 – In the fourth quarter of 2017, the Frankfurt office lettings market including Eschborn and Offenbach-Kaiserlei again outperformed the very positive development of the previous quarters. This is the conclusion of the latest study carried out by owner-managed real estate consultancy NAI apollo – partner of the NAI apollo group. According to the report, space take-up by owners and tenants amounted to 279,400 sqm in the last three months of the year, rising 50 % above the third-quarter result. For 2017 as a whole, total space take-up reached a very high level of 711,600 sqm.

"As a result of this excellent performance in 2017, the volume is not only 32 % above the very good previous year's figure but is also the second-best annual result ever recorded after 2000, when take-up reached around 725,000 sqm," said Radomir Vasilijevic, Head of Office & Retail Letting at NAI apollo.

Large deals shape market activity

In addition to the general recovery of the office market and some contracts that have already taken place as a result of Brexit, the Frankfurt office market also benefited from a large number of major deals in 2017. This in turn led to a notable decrease in the relevance of rental contract renewals.

"Owing to the particular importance of large deals in 2017, the two segments 5,001-10,000 sqm and 10,000-sqm-plus registered growth rates of 63.4 % and 75.8 % respectively compared to 2016. In contrast, contracts for spaces smaller than 1,000 sqm broadly remained at the previous year's level, with marginal growth of just 3.9 %," said Dr. Konrad Kanzler, Head of Research at NAI apollo group.

The biggest deals in 2017 included the letting of 44,400 sqm to Deutsche Bundesbank in the Frankfurt Büro Center (FBC) (40-46, Mainzer Landstraße) as well as the acquisition of MainPark (29-35, Kaiserleistraße) with approximately 27,500 sqm by Landesbank Hessen-Thüringen (Helaba). In addition, Deutsche Bahn rented a total of 52,600 sqm of office space in "The Brick" project development (70-76, Europa-Allee) as well as in the planned adjacent building (78, Europa-Allee).

Banks, financial service providers and insurances are most active users

As a consequence of the major deals that were signed last year, banks, financial service providers and insurances increased their share of take-up from 22.8 % (2016: 123,600 sqm) to 24.4 % (2017: 173,600 sqm). The high level of market activity on the part of Deutsche Bahn also secured second place for the traffic, transport and logistics sector with a 13.4 % market share or a take-up volume of 95,600 sqm. The construction and real estate sector was in third place with 12.3 %, largely owing to contracts signed by WeWork, MindSpace, Tribes, Agendis and Design Offices.

In terms of geographic distribution, the CBD accounted for the highest percentage of take-up with a share of 65 % (462,800 sqm). In terms of the different sub-markets, the banking district is undisputedly the most sought-after location in the market area, with a 25.4 % (180.400 sqm) share of the total.

"High-priced rentals in existing buildings as well as project developments caused a further significant increase in rental prices on the Frankfurt office market at the end of the year. The average rent increased by 7.3 % year-on-year to €20.70/sqm. The prime rent rose by 3.3 % to €40.30/sqm, thus exceeding €40-mark for the first time since 2008," said Radomir Vasilijevic.

Vacancies fall below 1 million sqm-threshold

The completions volume in the fourth quarter of 2017 amounted to a total of 15,100 sqm of office space. Owing to building delays, only 77,600 sqm was completed in 2017 as a whole. Taking into account space removals, the total office stock stood at 11.39 million sqm at the end of the fourth quarter of 2017. As things stand, a completions volume amounting to 124,900 sqm is expected for 2018 — of which only almost a fifth is currently still available.

The very positive take-up development combined with a small increase in stock was also reflected in the vacancy figures in the final quarter of the year. "Active market vacancies on the Frankfurt office market — that is, office spaces that can be occupied within three months of signing the lease contract — decreased by a further 91,000 sqm to 979,000 sqm within the fourth quarter. This results in a vacancy rate of 8.6 %, which is 2.2 percentage points lower compared to the previous year," said Dr. Konrad Kanzler.

Although the lettings pipeline is now well-filled, in the view of NAI apollo it will probably be difficult to repeat the 2017 result in 2018, in part owing to the fact that a few large contracts have dominated the market recently. However, NAI apollo expects space take-up in the coming year to exceed the 10-year average, which has now risen to around 474,000 sqm. In this respect, vacancies will also continue to fall and rental prices will continue to rise in the months ahead.

All data is as of 04.01.2018